The One Big Beautiful Bill Act (OBBBA), signed into law by President Trump on July 4, 2025, introduces significant changes to Medicaid, impacting California’s Medi-Cal program, particularly for seniors seeking long-term care (LTC) services. With a $1 million home equity cap for LTC eligibility effective October 1, 2028, and substantial Medi-Cal budget cuts looming, Californians may want to plan proactively to protect their assets for their loved ones or heirs.
This article, tailored for California residents, explains these changes and offers practical estate planning strategies to navigate the new landscape.
The $1 Million Home Equity Cap: A Game-Changer for Medi-Cal Eligibility
What Is the Home Equity Cap?
The OBBBA imposes a $1 million home equity cap for Medi-Cal applicants seeking LTC services, such as nursing home care or In Home Support Services (IHSS) or Home and Community-Based Services (HCBS) waivers. Starting October 1, 2028, individuals with home equity exceeding $1 million will be ineligible for LTC Medi-Cal unless exemptions apply (e.g., a spouse, minor, or disabled child resides in the home). Unlike prior federal guidelines, which allowed states to set caps between $730,000 and $1,097,000 (adjusted for inflation in 2025), the OBBBA cap is fixed and not indexed for inflation.
Impact on California’s Unlimited Home Equity Exemption
California eliminated its Medi-Cal asset limit, including the home equity limit, effective January 1, 2024, allowing applicants to qualify for LTC services regardless of their home’s value. This and the previous unlimited home equity exemption has been a lifeline for seniors in high-cost regions like Los Angeles, San Francisco, and San Diego, where median home values often exceed $1 million. However, the OBBBA’s federal cap overrides California’s exemption starting in 2028.
Key implications include:
- High-Cost Areas Hit Hard: In California, where home values frequently surpass $1 million, many seniors may be disqualified from LTC Medi-Cal, even if they meet income and medical need criteria.
- No Inflation Adjustment: The static $1 million cap will become increasingly restrictive as home values rise, potentially affecting more Californians over time.
- Exemptions Remain: The primary residence remains exempt if occupied by a spouse, minor, or disabled child, but single applicants without dependents face the full impact of the new law’s $1 million cap.
Medi-Cal Budget Cuts: Adding Pressure
The OBBBA cuts the Medicaid funding by $1.2 trillion over a decade, which will strain California’s Medi-Cal program. While specific state-level cuts are still being finalized, experts anticipate:
- Reduced Provider Reimbursements: Lower payments to nursing homes and HCBS providers may limit access to quality care, especially in rural areas.
- Tighter Eligibility Reviews: California may implement stricter income and asset verifications, even before 2028, to manage budget constraints.
- Potential Asset Limit Reinstatement: California has signaled it may reinstate an asset limit for Medi-Cal as early as January 1, 2026, which could compound the home equity cap’s impact.
These cuts, combined with the home equity cap, create a challenging environment for seniors relying on Medi-Cal for LTC, particularly those with significant home equity.
Why This Matters for Californians
California’s high cost of living amplifies the OBBBA’s impact. For example, a single senior in Los Angeles with a $1.5 million home (common in urban areas) could be ineligible for LTC Medi-Cal post-2028, forcing them to spend down other assets or sell their home to qualify. Additionally, Medi-Cal’s estate recovery program may seek reimbursement from the home’s value after death, even if exempt during the applicant’s lifetime, affecting heirs or trust beneficiaries.
Estate Planning Strategies to Navigate the Changes
To protect eligibility for LTC Medi-Cal and preserve assets, Californians should consider the following before October 1, 2028:
- Apply Before the Cap Takes Effect:
- Until October 1, 2028, California’s unlimited home equity exemption remains in place. Applying for Medi-Cal now can lock in eligibility under current rules, provided other criteria are met.
- Explore Transferring the Home to a Spouse or Dependent:
- Transferring the home to a spouse or qualifying dependent (e.g., minor or disabled child) can exempt it from the equity cap. Be mindful of Medi-Cal’s 60-month look-back period for asset transfers, which penalizes uncompensated transfers by delaying eligibility. Also, be aware that, under Prop 19, transferring a home to an adult child that does not live with you will trigger a property tax reassessment based on the current value of your home. The property tax can, therefore, go up by manyfold (sometimes as much as 10 or 20 times the current tax amount).
- Explore the Use of Specialized Trusts:
- Placing the home in a specialized trust can remove it from countable assets, provided the transfer occurs at least 60 months before applying for Medi-Cal. Consult an attorney to ensure the trust complies with California and federal Medicaid / Medi-Cal rules.
- Explore Retained Interest Transfers:
- Creating a term for years might allow the applicant to live in the home while transferring future ownership to heirs, possibly reducing countable equity. This strategy requires careful timing to avoid look-back penalties.
- Spend Down or Convert Assets:
- Convert home equity into exempt assets, such as home improvements (e.g., accessibility upgrades) or purchasing an annuity for a non-applicant spouse, to stay below the $1 million cap.
- Explore Reverse Mortgages:
- If truly needed, a reverse mortgage can reduce home equity by converting it to cash, which can then be used for exempt purposes or spent down strategically. However, this option requires careful financial planning to avoid jeopardizing Medi-Cal eligibility.
Legal Considerations for Trusts
If your home is held in a living trust, as is common in California, the OBBBA’s cap still applies to the home’s equity for Medi-Cal eligibility, regardless of whether the trust is revocable or irrevocable. For example, if the trust was funded with separate property (as in some California cases), the trustee’s administration must align with Medi-Cal rules. Appointing a spouse as trustee, as some families consider, does not affect the cap but may raise conflicts of interest if the spouse is also a beneficiary. Consult an attorney to ensure trust terms comply with Medi-Cal’s look-back and recovery rules.
Take Action Now
The OBBBA’s $1 million home equity cap and Medi-Cal budget cuts will significantly impact California seniors, particularly those in high-value homes. With the cap effective in 2028 and potential budget constraints as early as 2026, now is the time to plan. At Schneiders & Associates LLP, our experienced estate planning attorneys can help you:
- Assess your Medi-Cal eligibility under current and future rules.
- Structure trusts or asset transfers to protect your home and savings.
- Navigate Medi-Cal’s complex look-back and estate recovery rules.
Contact us today for a consultation. Don’t wait until 2028—proactive planning can secure your care and preserve your legacy.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for personalized guidance on Medi-Cal eligibility and estate planning.
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